Dollar Set for Sixth Monthly Drop Before Jobless Claims

The dollar headed for a sixth monthly loss versus the euro before a U.S. report that economists said will show jobless claims increased, validating the Federal Reserve’s decision to maintain asset purchases.

The U.S. currency dropped toward a 13-month low against the euro and weakened against the yen after the Fed said yesterday it will keep buying Treasuries and mortgage bonds. The yen strengthened against all of its 16 major counterparts as investors sought out safer assets. New Zealand’s dollar gained after the central bank said it was concerned about rising house prices, fueling bets on higher interest rates.

“The Fed’s stance is still a dollar-negative factor until such time as we can see enough improvement in the data to meaningfully start pricing in an exit strategy,” said Ray Attrill, global co-head of currency strategy at National Australia Bank Ltd. in Sydney. “The dollar is going to remain relatively soft.”

The dollar was little changed at $1.3562 per euro as of 8:55 a.m. in London, having declined 2.7 percent in January, the biggest monthly loss since October 2011. The U.S. currency weakened 0.2 percent to 90.92 yen. The yen appreciated 0.2 percent to 123.29 per euro.

U.S. applications for jobless benefits rose by 21,000 to 351,000 last week, according to a Bloomberg News survey before today’s Labor Department report. The jobless rate was unchanged at 7.8 percent in January, a separate survey showed before the data is released tomorrow. Unemployment has stayed at that level or higher since January 2009.

Fed Purchases

The Fed yesterday repeated that its asset purchases, divided between $40 billion a month of mortgage-backed securities and $45 billion a month of Treasury securities, will continue “if the outlook for the labor market does not improve substantially.”

The central bank left unchanged its statement that it planned to hold its target interest rate near zero as long as unemployment remains above 6.5 percent and projected inflation stays below 2.5 percent.

The yen strengthened the most against the South Korean won and Australian dollar out of its 16 major counterparts. Japan’s currency gained 0.5 percent versus the won and 0.4 percent against the so-called Aussie.

Japanese industrial output increased less than economists forecast last month, rising 2.5 percent from November, the Trade Ministry said today in Tokyo. Economists had predicted a 4.1 percent gain.

‘More Room’

The data adds to challenges facing Prime Minister Shinzo Abe as he seeks to boost growth and end more than a decade of deflation. The Bank of Japan this month doubled its price-gain target to 2 percent and announced open-ended asset purchases beginning next year.

“Yen depreciation has more room to go, in our view,” Barclays Plc analysts led by Jose Wynne wrote yesterday in a note to clients. “Market perceptions about economic growth remain subdued and inflation expectations stubbornly low.”

The yen will weaken to 100 per dollar in 12 months, the analysts wrote.

The New Zealand dollar rose versus 13 of its 16 major peers after Reserve Bank Governor Graeme Wheeler said policy makers expect economic growth to strengthen this year.

Watching Closely

“House price inflation has increased and we are watching this and household credit growth closely,” Wheeler said in a statement in Wellington after keeping the official cash rate at 2.5 percent. “The bank does not want to see financial stability or inflation risks accentuated by housing demand getting too far ahead of supply.”

The so-called kiwi appreciated 0.2 percent to NZ$1.2438 per Australian dollar and was little changed at 83.60 U.S. cents.

The central bank’s statement “was neutral to slightly hawkish in tone,” Sean Callow, a senior currency strategist in Sydney at Westpac Banking Corp., wrote in a research note today. The currency may climb toward 84 U.S. cents, he wrote.

South Korea’s won fell for a second day versus the dollar after Deputy Finance Minister Choi Jong Ku proposed taxes on currency trading to limit “speculative” capital inflows.

The won fell 0.3 percent to 1,088.59 per dollar at the close of trading in Seoul. The currency has declined 2.2 percent this month.

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